Inside the Term Sheet: What’s Changed in 2026

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Welcome to Unlocking Liquidity, the PrimaryMarkets podcast exploring capital raising, unlisted shares and the changing dynamics of private markets.

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A company’s valuation may make the headlines, but the terms behind an investment can have just as much influence on the outcome. Who gets paid first when a business is sold? How could a future funding round affect your ownership? And what rights do you have when you want to exit?

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In this episode, we go inside the term sheet to examine what’s changed in 2026 and what wholesale and sophisticated investors should look for. We explore liquidation preferences, dilution, governance and funding conditions, alongside Australian examples and the practical realities of secondary trading.

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Join us as we look beyond the headline valuation to understand how an investment’s structure shapes risk, control and potential returns.

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A company’s valuation may attract attention, but its investment terms determine how that valuation translates into ownership, influence and potential returns. For wholesale and sophisticated investors in unlisted companies, the distinction is fundamental. Two investments carrying the same headline valuation can produce very different outcomes when their share rights, funding obligations and exit provisions are examined.

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In 2026, the term sheet remains the starting point for that examination. What has changed is the negotiating environment around it. Capital is available, but unevenly distributed. Some businesses can attract competitive funding on relatively straightforward terms, while others must negotiate around limited cash reserves, uncertain commercial milestones or the need for another funding round.

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The evidence does not support a blanket claim that every investor is demanding stronger protections. Instead, it points to a market in which bargaining power depends heavily on the particular company. Understanding that difference is essential when assessing what an investment actually offers.

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Australia’s funding figures illustrate the divide. Cut Through Venture’s September-quarter 2026 report recorded approximately A$4.2 billion in announced startup funding. However, Firmus’s A$2.85 billion financing accounted for about 69% of the total. The five largest deals attracted 88% of the quarter’s capital. These figures describe a concentrated funding market, rather than uniformly easier access to investment.

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The implication for term sheets is that broad market headlines provide limited guidance for an individual transaction. A business with several credible investors competing for an allocation faces a different negotiation from one seeking capital to maintain operations. Investors should therefore assess funding alternatives, cash runway and the purpose of the raise alongside the valuation.

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International deal data reinforces the need for nuance. Wilson Sonsini’s second-quarter 2026 report found that senior liquidation preferences appeared in 16% of Series B and later financings during the first half of the year. It also reported a decline in their prevalence from 2022 levels. This is evidence from the firm’s US financing dataset, not an Australian market benchmark, but it challenges the assumption that protective terms must always become more demanding.

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For Australian investors, the practical conclusion is to test each proposed provision against the company’s circumstances, rather than accept “market standard” as a complete explanation.

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The headline valuation remains important, but it is only the beginning of the ownership calculation. Investors need to understand whether the quoted figure is pre-money or post-money, which securities are included, and how outstanding options and convertible instruments will be treated.

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Consider a hypothetical Australian company raising A$5 million at a A$20 million pre-money valuation. In a simple transaction, the post-money valuation is A$25 million and the new investors collectively own 20%. However, that result assumes there are no additional adjustments affecting the agreed capitalisation.

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An employee option pool, an outstanding convertible note or a previously issued SAFE can change the calculation. The term sheet should make clear whether an option pool increase occurs before or after the investment and how conversion shares are included in the fully diluted share count.

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These mechanisms are not new in 2026. Their continuing relevance is that an attractive price can be misunderstood when the capital structure is incomplete. A useful investment assessment therefore includes a capitalisation table showing ownership before the transaction, immediately afterwards and under a plausible future financing.

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The question is not simply how much of the company the investor initially receives. It is how that ownership could evolve as the business funds its next stage.

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A liquidation preference establishes priority between classes of shareholders when specified events occur, commonly including a sale of the company. It should not be confused with a guarantee of repayment or priority over the company’s creditors.

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Australian law firm Holding Redlich’s February 2026 discussion of venture capital term sheets highlights the significance of these provisions, including the cumulative effect when preferences are added through successive funding rounds. The relevant issue for an investor is both the right attached to their own shares and the rights already attached to other securities.

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A simplified example demonstrates the difference. Assume an investor contributes A$5 million for 20% ownership, with a one-times non-participating liquidation preference. If A$15 million is available for distribution to shareholders on a sale, the investor would generally choose the A$5 million preference over the A$3 million available through ordinary pro-rata participation, subject to the documents and any competing rights.

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If the same shares instead carry an uncapped participating preference, the investor might receive the initial A$5 million and then 20% of the remaining A$10 million, producing A$7 million in total.

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These are hypothetical outcomes, assuming a single preference class and no other adjustments. They show why the participation mechanism matters as much as the preference multiple. Investors should also examine whether different preference classes rank equally or whether later investors receive priority.

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Anti-dilution provisions address a different risk: a subsequent financing at a lower share price. Their effect depends on the formula used and the securities to which they apply.

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A broad-based weighted-average adjustment takes account of the lower price and the relative size of the new issue. A full-ratchet mechanism can reset the protected security’s conversion price to the new lower issue price without the same weighting. Depending on the transaction, the latter can shift substantially more dilution onto unprotected shareholders.

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For an incoming investor, that protection may appear attractive. However, its wider consequences deserve attention. A structure that heavily dilutes founders, employees or earlier shareholders can complicate the next financing and weaken incentives.

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Participation rights should also be distinguished from anti-dilution protection. A right to invest in future rounds may allow an investor to maintain their percentage holding, but doing so normally requires additional capital. It does not prevent dilution automatically.

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For wholesale investors building a portfolio, the commercial question extends beyond the first cheque. How much further capital might be required to preserve the intended exposure, and would the investor still want to commit it if performance falls short?

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A term sheet describing a substantial investment does not necessarily mean the full amount will be available at completion. Funding may be divided into tranches or depend on conditions that remain unresolved.

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For a hypothetical Australian medical technology company, later funding might depend on a clinical milestone. For an industrial technology business, it could depend on a manufacturing outcome or customer contract. Such arrangements can align capital deployment with progress, but their practical value depends on precise drafting.

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The assessment should cover who determines whether a milestone has been achieved, what evidence is required and what happens if timing changes. A condition based on an objectively verifiable event is different from one allowing an investor to withhold funds because it is no longer satisfied with progress.

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Investors should distinguish committed funding subject to specified conditions from a non-binding intention to consider further investment. The company’s operating plan should reflect that difference.

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This is particularly relevant where a business needs the entire announced amount to reach its next financing milestone. An apparently substantial raise can leave material funding risk if only the first instalment is firmly available.

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An investor’s position also depends on the information and influence available after completion. Ownership alone does not establish the frequency of reporting, access to management or the ability to influence major decisions.

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Holding Redlich identifies veto rights over matters such as future capital raisings, dividends and exits as important term-sheet considerations. The scope of those rights needs to be understood in conjunction with the company’s governance arrangements.

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For a minority investor, reporting provisions can be particularly valuable. Regular financial information, cash-flow forecasts and updates against agreed objectives help investors assess whether the investment case remains intact. Their usefulness depends on clear reporting obligations and information that management can realistically provide.

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Consent rights require similar care. Oversight of significant borrowing, related-party transactions or changes to share rights may protect investors, but an unnecessarily broad approval regime can impede ordinary operations.

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Smaller investors should also establish whether rights belong to every shareholder, a particular share class or only investors maintaining a specified minimum holding. The protections negotiated by a lead investor may not extend to every participant in the round.

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For investors in unlisted shares, a potential exit should be assessed separately from the company’s growth prospects. A business can perform well while shareholders remain unable to realise their investment at a suitable time or price.

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An Australian-founded example is Airwallex’s May 2025 Series F announcement, which disclosed US$150 million in secondary share transfers within the transaction. Although this predates 2026, it illustrates the distinction between financing a company and providing liquidity to existing holders. The announcement does not disclose the full private terms or establish that comparable opportunities are available to shareholders in other companies.

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A primary share subscription generally directs investment into the company. A secondary purchase generally pays an existing holder. Where both occur together, investors need to understand the allocation of proceeds and whether the securities have equivalent rights.

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The documents should also be examined for transfer restrictions, required consents and rights allowing existing shareholders to purchase shares before an outside buyer. Access to a trading facility does not override those restrictions or guarantee a counterparty.

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For the wholesale and sophisticated investors using PrimaryMarkets, this distinction connects capital raising with secondary trading. The investment assessment includes both the company’s funding needs and the practical conditions under which ownership may later change.

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One clear legal change in 2026 is Australia’s mandatory merger notification regime. From 1 January, acquisitions that meet the applicable requirements must be notified to the Australian Competition and Consumer Commission and cannot proceed before approval. Thresholds, exemptions and the transaction’s particular circumstances determine whether notification is required.

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This does not mean every minority investment or unlisted share transfer needs ACCC clearance. It does mean that relevant investments and acquisition-led strategies require an early assessment of the regime, rather than an assumption that regulatory work can be addressed after commercial terms are settled.

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Where clearance is required, the term sheet and subsequent agreements need to allocate responsibility for the process and address completion timing. Parties should consider the consequences of delay, the deadline for satisfying conditions and how proposed remedies would be handled.

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For investors assessing a company whose growth plan relies on acquisitions, the implications can extend beyond their own subscription. The feasibility and timing of the underlying expansion strategy may also depend on regulatory approvals.

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A term sheet is usually a summary of the proposed transaction, not the complete investment contract. Some provisions, commonly confidentiality and exclusivity, may nevertheless be binding. Its status depends on its wording and the surrounding circumstances.

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The completed investment must therefore be assessed through the definitive documents, including the subscription agreement, shareholders’ agreement and constitution, as relevant. Any side letters or investor-specific arrangements also need appropriate consideration.

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A secondary investor may be acquiring securities issued under an earlier financing rather than negotiating a new term sheet. In that situation, the original issue terms are only part of the analysis. Subsequent amendments, later funding rounds and the conditions governing the transfer can all affect the position being purchased.

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This makes document consistency a commercial issue. The rights described in an investment presentation need to match those that will actually apply to the investor’s holding.

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The defining change in 2026 is not the invention of an entirely new set of investment clauses. It is the combination of uneven funding conditions, company-specific negotiating power and, in Australia, a changed regulatory framework for relevant acquisitions.

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For wholesale and sophisticated investors, a disciplined assessment connects the headline price with the capital structure, distribution rights, governance arrangements and funding requirements. It also tests the investment under less favourable circumstances: a delayed milestone, a lower-priced financing or an exit below expectations.

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The strongest investment case is one in which the commercial opportunity and the contractual structure support each other. A compelling business can still be an unattractive investment at the wrong price or on poorly understood terms.

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Inside the term sheet is the framework for how capital, control and value will be shared. Understanding that framework remains central to informed participation in private markets.

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As private markets continue to evolve, investors and companies are increasingly seeking greater access, transparency and liquidity. PrimaryMarkets is an Australian-based platform that helps facilitate capital raising and secondary trading opportunities in private companies, managed funds and other unlisted investments.

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Through its capital raising and trading solutions, PrimaryMarkets connects sophisticated and wholesale investors with a diverse range of private market opportunities across sectors including technology, healthcare, energy, resources, property and alternative assets. The platform also assists companies and fund managers to access growth capital while providing existing shareholders and unitholders with potential liquidity pathways.

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By combining technology with market expertise, PrimaryMarkets is helping to modernise private capital markets, making it easier for investors to discover opportunities and for companies to connect with capital. As the private market ecosystem continues to mature, platforms such as PrimaryMarkets are playing an increasingly important role in improving access, facilitating transactions and supporting the efficient flow of capital.

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And that brings us to the end of this episode of Unlocking Liquidity. Thanks for spending your time with us, we hope today’s conversation gave you a fresh perspective on private markets and how liquidity is evolving. If you enjoyed the episode, please follow or subscribe wherever you listen, and feel free to share it with someone who’d get value from it. For more insights, opportunities and episodes, visit PrimaryMarkets.com. Until next time, thanks for listening, and we’ll see you in the next conversation.